As per Assessment Year 2006-07
QUICK LOOK
- A minor's income is clubbed with that of the parent with the
higher income.
- Only income earned till the year the minor attains age 18 is
clubbed.
- A minor's income is clubbed after allowing for various
deductions.
In excess of Rs. 1,500 earned by a minor, the income is added to
the parent with higher income, irrespective of the residential status of
either the child or the parent. The clubbing provision is applicable
even if the parents are NRI and the minor stays in India or vice-versa.
Non-clubbing of Minor's Income
Clubbing provision is not applicable in the following cases:
- If the minor is suffering from permanent physical disability.
- If the minor earns through manual work or by using skills,
experience, talent or specialised knowledge. It will be taxed as her
own income.
Exception: Income up on such incomes are clubbed with parents, like
interest received from bank if the money is deposited.
Parent's Income
The minor's income is clubbed with the parent with higher income in the
year the minor first earns income. Supposr it is clubbed with the
mother's income in the first month, it cannot be clubbed with that of
father in the following years, even the income of father exceed that of
mother.
Majority of child
At the time the child becomes major, the income earned till the date
the child turns 18 is to be clubbed. In case of earning from business of
minor, the profits for the year in which she turns 18 whould not be
clubbed, since they would accrue the last day of the year.
Computation of Minor's Income
Income earned by a minor is clubbed after allowing for various
deductions like gross rent earned from house property is reduced by
municipal taxes, a notional deduction of 30 per cent of the annual value
and the interest on loans taken to buy the property.
If the income is from other sources, the income is reduced by expenses
incurred in earning and then clubbed.
In case of capital gains, the proceeds from the sale of an asset are
reduced by the cost of acquisition or the indexed cost of acquisition of
asset. The gains are also reduced by the exemption under Sections 54,
54F, 54EC, etc. of IT Act. The balance is clubbed.
If the capital gains arise from the sale of long-term capital assets,
the parent of the minor pays the tax at concessional rates as the tax
rates on are same on the long-term gains irrespective of whether the
child or the parent makes the gain.
The investments in immovable property should be from the minor's
resources to enhance her capital in long run. This reduces the family's
tax incidence, since the income earned after she turns 18 will be taxed
in her hands.
If the immovable property is to be sold during the period the child is
minor, it is only after getting the permission from the High Court.
Investment of Minor's Fund
- Dividend on shares, income from mutual funds, interest on a
public provident fund account and the interest on specified bonds is
tax-exempt.
- Income from a registered partnership firm in which minor is
inducted is tax-exempt.
Loss of the Minor
Any loss under any head arising to a minor will be treated as the loss
of or the parentsf. It will be adjusted against the parent's other
income subject to the provisions of the law.
Deduction from Minor's Income
According the Section 80C, investments in specified instruments are
eligible for a deduction level of maximum Rs. 1 lakh on making specified
investment. Hence, where the minor has used her own money to make
investment, the parent is entitled to a deduction.
Filling of Minor's Income
A minor need not file returns as the income is clubbed. But in
following cases the filing is compulsory:
- If the income is from manual labour or through talent or
specified knowledge.
- If the minor is covered by any of the following even the income
is nil and clubbed with parents:
- Owns immovable property.
- Owns vehicle.
- Has incurred expenditure on foreign travel.
- Is a member of a club.
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